Some brief thoughts below on the Alphabet (Google) Q1 results announced yesterday. As usual, this is not investment advice and all comments/thoughts welcome:
1. Alphabet missed expectations on both the top and bottom line. Q1 revenues were $68.01bn vs $68.11bn consensus according to Refinitiv while Earnings Per Share (EPS) came in at $24.62 vs $25.91 expectations. TACs came in higher than expected at $11.99bn vs $11.69bn expectations;
2. The core of the business remains solid, with Search up 24% YoY. However, there was an emphasis on the tough comps compared with 2021, especially for Q2, which seems to be an implicit signal to the market that growth levels may remain relatively subdued. One interesting point was management saying they are not seeing a noticeable shift of revenues from Social to Search post-Apple’s changes
3. There is a lot of attention on YouTube’s revenue miss. It came in at $6.87bn Ad revenues vs $7.51bn consensus. A variety of factors was mentioned such as tough comparables, Apple’s changes, the impact of the growth of Shorts and FX. Two factors were noticeable, one by its absence, one by its presence;
4. The absent part was a lack of mention about TikTok impacting numbers, which stands in contrast to statement from peers such as Meta (Facebook) and Snap. That doesn’t necessarily mean it’s not a factor but, even in response to a direct question, management didn’t state TikTok was causing significant issues, which stands in contrast to the others;
5. The presence part is the impact of the Ukrainian conflict, where Alphabet said it had seen a noticeable impact in brand advertising spending in Europe. What’s interesting is this pullback is not necessarily being seen by other advertising-related businesses, such as the agencies or broadcasters (French TV Broadcaster M6 reported Q1 TV ad revenue growth of +7.5%). That raises the question of whether this is the ad market in general, spend one YouTube in particular or on social media in general because of advertisers wariness of ads around war-related content. My inclination is to think more the third
6. Cloud did well with revenues up 44% in a market that generally is doing well (Microsoft reported 46% growth for its Cloud business) and was ahead of forecasts. Google’s offering though remains #3 in the market and the above does not suggest significant market share capture
7. From a share price perspective, any miss is never good, especially in an investing environment that is less Tech friendly. The beat by Microsoft is also probably unlikely to help sentiment, especially given the contrast
8. Meta reports later today. Given the comments on YouTube from Alphabet and from Snap at their Q1 results, there will be close scrutiny of whether Meta has faced the same trends, especially given the poor reaction to their 3-11% revenue growth guidance for Q1. The risk does feel on the downside but expectations for growth are so low that this may counteract this.
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